Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

4Q13 earnings were 4.9% below our model
SCB posted a 4Q13 profit of Bt11.8bn, up 20% YoY but down 8% QoQ. The result was 5.8% below our model but was in line with the Bloomberg consensus. SCB set heavier loan loss provisions than we expected of Bt4.2bn (we had assumed only Bt3.6bn). Pre-provisioning operating profit was Bt19.1bn, up 24% YoY (but down 3% QoQ), driven by lending and fee income expansion. FY13 earnings jumped 28% YoY to Bt50.2bn, which represents 99% of our FY13 model.
Results highlights
Lending grew by 3.3% QoQ and 12.1% YoY, slightly below our model. Corporate, SME and retail business all expanded. Corporate loans grew by 3.3% QoQ, mortgages by 3.5% QoQ and SME lending by 3.7% QoQ. However, the HP portfolio contracted 1.1% QoQ. NIM increased by 6 bps QoQ and 1 bps YoY to 3.16% in 4Q13, driven by SME lending growth. LLPs rose by 20% YoY and 1% QoQ to Bt4.2bn. The NPLs/loans ratio was 2.1% at YE13, unchanged QoQ. SCB’s loan loss cushion ratio was 151% at YE13, also unchanged from three months earlier.
Net interest income (NII) grew by 15% YoY and 1% QoQ to Bt19bn, while net fee income was Bt11.2bn, up 8% YoY and flat QoQ. Non-NII expanded 20% YoY (but dipped 3% QoQ) to Bt12.9bn, driven by dividend income. The cost/income ratio rose slightly to 42.4% for 4Q13 from 41.3% in 3Q13, as OPEX increased by 8% YoY and 3% QoQ to Bt12.8bn—a faster rate of growth than that for fee income.
Outlook
SCB should deliver moderate YoY earnings expansion for 1Q14. Lending growth is likely to slow but NIM should be sustained at about the same level as reported for 4Q13.
What’s changed? 
Our FY14-15 profit forecasts stand unchanged for the moment at Bt60bn and Bt69bn, respectively.   
Recommendation
We have a BUY rating on SCB, premised on: 1) a consensus-beating lending growth profile, 2) good asset quality management (an NPLs/loans ratio of only 2.1%) and 3) capacity for a swift earnings growth recovery when the political turmoil eases. Additionally, its CAR is 15.1% (12.64% Tier-1), substantial enough for the bank to sustain swift lending expansion for some years ahead without need for a cash call.